Sunday, April 29, 2012

Cartoon of the Day: Financial Advice


Love of Theory is the Root of All Evil

Sunday Verse: Weldon Kees

1926

The porchlight coming on again,
Early November, the dead leaves
Raked in piles, the wicker swing
Creaking. Across the lots
A phonograph is playing Ja-Da.

An orange moon. I see the lives
Of neighbors, mapped and marred
Like all the wars ahead, and R.
Insane, B. with his throat cut,
Fifteen years from now, in Omaha.

I did not know them then.
My airedale scratches at the door.
And I am back from seeing Milton Sills
And Doris Kenyon. Twelve years old.
The porchlight coming on again.

~ Weldon Kees

Friday, April 27, 2012

Brands



Click to Enlarge

This looks like a great buy list at the right price for the long-term stock accumulator. Too bad Mars is still a private company.

Will Higher Taxes Balance the Budget?



Why is cutting spending never an option on the table? In this video Antony Davies explains why higher taxes won't balance the budget.

The government spending tsunami has almost engulfed the working class. Today, even the suggestion of taking money away from any bureaucracy, special interest or constituent group is greeted with wails and threats to reelection. So it will take a group of principled politicians to lock arms together and do it. Of course, a principled politician is rather like a unicorn -- exceedingly rare, if not non-existent.

There are the low-ball spending projections from the CBO:



Judge Napolitano: What Happened to America?



Many who are heavily invested in or subsidized by big government will suggest that people like Judge Napolitano are on the fringe, that his ideas are quaint, and those who still espouse those ideas are crude troublemakers. But the idea of limiting government is neither quaint nor obscolete. It is the principal the United States was founded under and is still mankind's last great hope. It is not so much an ideology, but a meta-politic designed to give rise to the most diverse possible ways of living and pursuing happiness. It requires freedom. It is the latticework of peace. Indeed, here's a question: when we consider modern history we have to ask: what organization has committed more atrocities, religion or government? There is simply no contest. Governments, if they are necessary at all, must have their powers checked.

Wednesday, April 25, 2012

Why Not Print More Money to Solve All of Our Problems?

Quote of the Day: Burton Malkiel

No one has ever become rich by being a long-term bear on the fortunes of the United States, and I doubt that anyone will do so in the future. This is still the most flexible and innovative economy in the world.

~ Burton Malkiel

Driverless Cars



We're not the Jettson's yet, but we're on our way to driverless flying cars.

Tuesday, April 24, 2012

Quote of the Day: Thomas Sowell

It is amazing that people who think we cannot afford to pay for doctors, hospitals, and medication somehow think that we can afford to pay for doctors, hospitals, medication and a government bureaucracy to administer it.

~ Thomas Sowell

Monday, April 23, 2012

A Random Act of Journalism: The Case Against Lehman Brothers



The questions are simple: where is the bite in Sarbanes-Oxley? Why has the SEC not prosecuted those officers who certified the financial statements? Does the law mean nothing anymore? Someone needs to be made an example of to send the message to those companies who survived the financial crisis that this behavior will have personal consequences to those who engage in it. It just won't mean the bankruptcy of a firm and a total loss for shareholders, but jail time for the officers who engaged in the fraud.

Cartoon of the Day:Cat Scratch Fever


Is Chesapeake Energy a Turnaround Play or Just a Dog with Fleas?

It's been a rough year for Chesapeake Energy (CHK). Since June of 2011, the stock has fallen 45%, trailing the overall stock market significantly. It is almost universally despised as an investment. Many pros think it is headed for single digits due to numerous issues with the company. Does opportunity exist in the midst of all this pessimism?


Chesapeake Energy is one of the nation's leading natural gas and oil producers. As of the last quarter, it had interests in more than 45,000 wells across U.S. It was founded in 1989 in Oklahoma City and is one of the pioneers of fracking, keeping it front and center in the oil and natural gas boom on private lands here in the US.

The knocks on Chesapeake have remained consistent over the years---- 1) too much debt, 2) too aggressive in land rights acquisitions in the major shale plays, 3) over-reliance on the price of natural gas for cash flow, 4) capital expenditures exceed cash flow year after year, 5) corporation is run for the benefit of the corporate officers, not the shareholders, and 6) a Board of Directors that fails to provide appropriate governance and oversight.

To combat some of these criticisms, the company has adopted a strategy to reduce its level of debt by 25% by the end of this year through assets sales and divestitures, increase its production by 15%, increase its production of higher priced and higher margin liquids as opposed to dry gas, and actively help to develop the market for natural gas as a transportation fuel for trucks and cars.

The record low prices for natural gas have suppressed the price of the stock. Many analysts view Chesapeake as nothing more than a proxy for the price of natural gas. However, the stock plunged this past week on several not very flattering revelations about the company to settle below $17.50 after Friday's trading.

Aubrey McClendon, CEO of Chesapeake, is a flamboyant character and an incredible evangelist for both Chesapeake and natural gas. It was disclosed last week by Reuters that he borrowed $1.1 billion over the past 3 years against his 2.5% stake in the company's wells, a perk known as the Founder Well Participation Program (FWPP). The FWPP has been public knowledge for years. McClendon has taken part in the FWPP since 1993. Under the plan, McClendon receives a 2.5% share in assets from every well the company drills. He is also responsible for a 2.5% share of the well's costs, one reason for the sizable borrowings. According to company proxy statements, McClendon lost some $258 million on the FWPP in 2009 and 2010. In all likelihood, McClendon will see long-term returns, but the amount of upfront costs required for his participation in the FWPP necessitates this massive borrowing.

The borrowing was not  disclosed by Chesapeake until after the story broke, and initially sent the stock down by some 10%.  The fear is this level of borrowing could compromise McClendon's fiduciary duties to Chesapeake in favor of serving his own self-interests. This deal brings back memories of 2008, when he bought nearly $1 billion in Chesapeake stock on margin. In the market tumult of 2008, the stock slid, falling 40% one week in October as McClendon's stake was force to be liquidated on a margin call. The CEO received a $112 million pay package that year, and yet sold his map collection to Chesapeake for $12 million (why an oil and gas company would want to own antique maps in beyond me other than it was bailing the CEO out of a financial jam). That transaction was later reversed after a shareholder lawsuit.

This latest action by the company has also brought a slew of shareholder lawsuits and disgust with its Board of Directors, and reinforces the perception the company is run strictly for the benefit of its executives. After the drop this past week, Chesapeake is selling at 8 times this year's earnings and 6 times next year's estimates. Is now the time to invest in Chesapeake?

My view on Chesapeake is that it is not a long-term buy and hold play. At best, it is a speculation, with the hope that it isn't using Enron style accounting to hide its true level of debt. Perceptive bargain hunters such as Southeastern Asset Management are big investors in Chesapeake. But with every turnaround situation, the investor must ask what is the catalyst for the turnaround. In the case of Chesapeake, I see two potential drivers: 1) an increase in natural gas prices, and 2) a more independent board of directors that will refuse to loan money to the CEO and will concentrate on production side of the company and being cash-flow positive. If the investor believes natural gas prices will recover from their sub $2 levels to the $5 - $7 range, Chesapeake could easily double from these prices. Chesapeake certainly is betting that prices have bottomed since they are now going naked, with no hedges in place to protect them from negative price movements. I think Chesapeake is a decent speculation on a turnaround in natural gas price for a small portion of investor dollars, but don't bet the farm, and don't expect a fundamental change in management practices unless there is a full scale shareholder revolt.  As always consult your financial adviser before committing any funds.



Sunday, April 22, 2012

Walter Williams: The Power of Profit

Economic Trivia: Visualizing Ocean Shipping and Trade 1750-1850



This visualization from the Sapping Attention blog shows 100 years of ocean shipping paths, as recorded in hundreds of ships' log books, by hand, one or several times a day, from 1750-1850.

World Peace Breaks Out on the Basketball Court



Disgraceful. Anyone with the name Metta World Peace obviously has some mental issues, but this is idiotic. I hope he gets suspended for the rest of the season and the playoffs.

If I Wanted America to Fail



Sums up where we are as a nation in 2012. To this list I would probably add: foreign adventures in nation building in the middle east over oil and terrorism, and increase the percentage of the population receiving some kind of government benefit, subsidy or welfare to over 50% of the population.

Sunday Verse: Philip Levine

Among Children

I walk among the rows of bowed heads--
the children are sleeping through fourth grade
so as to be ready for what is ahead,
the monumental boredom of junior high
and the rush forward tearing their wings
loose and turning their eyes forever inward.
These are the children of Flint, their fathers
work at the spark plug factory or truck
bottled water in 5 gallon sea-blue jugs
to the widows of the suburbs. You can see
already how their backs have thickened,
how their small hands, soiled by pig iron,
leap and stutter even in dreams. I would like
to sit down among them and read slowly
from The Book of Job until the windows
pale and the teacher rises out of a milky sea
of industrial scum, her gowns streaming
with light, her foolish words transformed
into song, I would like to arm each one
with a quiver of arrows so that they might
rush like wind there where no battle rages
shouting among the trumpets, Hal Ha!
How dear the gift of laughter in the face
of the 8 hour day, the cold winter mornings
without coffee and oranges, the long lines
of mothers in old coats waiting silently
where the gates have closed. Ten years ago
I went among these same children, just born,
in the bright ward of the Sacred Heart and leaned
down to hear their breaths delivered that day,
burning with joy. There was such wonder
in their sleep, such purpose in their eyes
dosed against autumn, in their damp heads
blurred with the hair of ponds, and not one
turned against me or the light, not one
said, I am sick, I am tired, I will go home,
not one complained or drifted alone,
unloved, on the hardest day of their lives.
Eleven years from now they will become
the men and women of Flint or Paradise,
the majors of a minor town, and I
will be gone into smoke or memory,
so I bow to them here and whisper
all I know, all I will never know.

~ Philip Levine

Saturday, April 21, 2012

Thursday, April 19, 2012

Quote of the Day: Donald Boudreaux

From a letter to the New York Times on oil speculation:

You speculate that “excessive speculation, mainly by Wall Street index-fund traders, is needlessly driving up [gasoline] prices” (“Speculators and the Gas Pump,” April 19).

Speculative buying is excessive only if it pushes prices higher than will be warranted by tomorrow’s conditions. But no one – not even the academic authors of papers to which you link – knows for certain just how tight gasoline supplies will be tomorrow. Many investors are speculating that these supplies will be very tight indeed. If these investors are correct, they’ll earn profits and their purchases today will be revealed tomorrow not to have been excessive.

You, in contrast, insist that these speculators are mistaken (that is, you think they’re destined to lose money on their investments). So put your money where your mouth is: invest contrary to these speculators by going short in gasoline. If you’re correct that today’s speculation is excessive, not only will you make a killing when proof of your prescience arrives tomorrow in the form of gasoline prices that are lower than are expected by the speculators who you criticize, you’ll also put downward pressure on today’s gasoline prices.

Rather than opine with no skin in the game, get involved! Show the world that your intellectual speculations aren’t idle.

~ Don Boudreaux, Stakeless and Idle Yammering

Jeffery Neal, of the University of Virginia responds:
Professor, While your point is mostly accurate, I remind you that there are already traders who have taken the short position you recommend to the NY Times. For EVERY long position there must be a short position, else there is not trade or transaction. Those who suggest that speculators are driving up the price of a commodity presume that there is a knowing dunce on the short side of the trade who is willingly, voluntarily and intentionally losing money so that the speculators on the long side can make their ill-gotten profits. Otherwise, if "everyone" knows that the traders speculating in the long position, none of 'everyone' would be taking the short position, would they? And, in that case, there is no trade... until the market's bid/ask process finds the strike price at which there is a short/long equilibrium and the trade happens... and the strike price moves up or down instantaneously and constantly all day every day of trading.

Wednesday, April 18, 2012

Are You Paying Your Fair Share to Support the GSA Lifestyle?


Grouch: Since the Buffett tax failed to get enough votes in Congress, maybe it's time to regroup and pitch the Neely/GSA tax.  Think of the exotic possibilities for boondoggles to relieve the stress of all those hard working government bureaucrats.

More Presidential Election Silliness

Would you be more inclined to vote for the candidate who put a dog in a crate on the roof of their car to go on the family vacation or the candidate who has eaten dog? Which candidate would you say is more humane in their treatment of man's best friend? Let's see if anyone in the mainstream media has the guts to actually frame the issue this way. But, quite honestly, I don't even know why this matters.

The Discovery Comes to the Smithsonian at Dulles





I watched the fly-over yesterday from the roof of my building at work.

Tuesday, April 17, 2012

Fighter Pilot



Watch this video in full screen mode.

Monday, April 16, 2012

Sunday, April 15, 2012

Learning from the Great Investors: Bruce Berkowitz

Bruce Berkowitz was Morningstar's manager of the decade while compiling an enviable record at the Fairholme Funds. Recently, he has taken a lot of criticism for picking investments that go against conventional wisdom, and significantly underperforming the market during the recovery from the financial crisis. Investors should keep in mind the motto of his firm is "Ignore the Crowd." In part due to his recent poor performance and the cash outflows from his funds as fair weather investor flee to chase better performing funds, Berkowitz has been doing some PR work to educate investors on his rational for some of his most controversial stock picks. This give students of investing a great opportunity to gain insight into the thinking of one of the great modern investors. Would you be interested in companies with the following characteristics:
Company 1

  • Trades at less than one‐third book value
  • Core businesses generating 1% return on assets and 10% return on equity
  • Fortress balance sheet
  • Largest U.S. retail deposit market share and serves one in every two U.S. households
  • Operates in all 50 states and serves clients in over 100 countries
  • Essential to global economic security
To find out more about this company access the presentation here.

Company 2

  • Trades at less than one‐half tangible book value
  • Fortress balance sheet
  • Shareholder equity‐to‐assets ratio of 15%
  • Repurchasing common stock
  • Dominant U.S. life insurance and retirement services provider
  • 86 million customer and client relationships worldwide
To find out more about this company access the presentation here.
I'm sure these names will surprise most investors. But Berkowitz isn't the average buy an index and wait forever investor. The quotes below will give you an some insight into his thought process:

“Current headlines remain scary...[and] company stock prices at times become schizophrenic, but in the end, they consistently revert to reasonable assessments of value.”
– Bruce R. Berkowitz, Letter to Clients, July 2008

“Our inclination remains to run from the popular and embrace the hated where prices tend to reflect such mistrust...we eventually get it right by seeing beyond temporary conditions and by avoiding diversification that leads to mediocrity.”
– Bruce R. Berkowitz, Semi-Annual Report, May 2011

“The seeds of great performance are usually sown in times of intense fear after a disaster.”
– Bruce R. Berkowitz, Letter to Clients, October 2011

“This is not an easy time for value investors. As we practice the strategy, value investing has been underperforming and prices for our companies are depressed and do not reflect intrinsic value or business fundamentals...Each of our holdings generates excess free cash. All are at bargain prices. Yet, our investment experience has taught us that we cannot control prices. Cheap can get cheaper, even if there is nothing fundamentally wrong. However, market history says that high quality, well‐managed companies don’t stay cheap for long.”
– Bruce R. Berkowitz, Letter to Clients, February 2000

Quote of the Day:Robert Higgs

If Politicians’ Honesty Set the Standard for Others
If engineers were no more honest than the typical politician, all of the bridges would fall down.

If accountants were no more honest than the typical politician, every firm would go bankrupt.

If merchants were no more honest than the typical politician, Paris would not get fed; nor would any other city.

If preachers were no more honest than the typical politician, everyone who took their sermons to heart would go straight to hell.

If physicians were no more honest than the typical politician, all of the patients would die.

If carpenters were no more honest than the typical politician, every house would collapse.

If spouses were no more honest than the typical politician, every marriage would be on the rocks.

If used car dealers were no more honest than the typical politician, no one would risk buying a used car.

If electricians were no more honest than the typical politician, we would all be electrocuted.

If soldiers were no more honest than the typical politician, both sides would lose every battle.

And so forth.

So, the questions naturally arise: Why does anyone place any confidence in anything a politician says? Why does anyone expect anything but deception and predation from these dishonest reprobates? Why does anyone seek social improvement or economic salvation from the programs these ne’er-do-wells devise and implement? Why, indeed, do people continue to tolerate politics at all? (This last question presupposes, of course, that those who wish to use the political process to commit a de facto crime—that is, an act that, if committed privately, would be seen as plainly criminal—will be entirely in favor of politics because using the government as their agent-perpetrator offers a way to legalize their crimes. My question pertains to the noncriminal element of the population.)

~ Robert Higgs

Saturday, April 14, 2012

Joe Biden: How Easy It is to be Charitable with Other People's Money

Joe and Jill Biden just released their 2011 tax returns. They reported $379,035 in adjusted gross income (AGI) last year, on which they paid $87,900 in income taxes; and they deducted $5,540 for charitable gifts. The table above shows the Bidens 14-year history of AGI and charitable gifts and the average charitable gifts for AGI amounts comparable to the Bidens, according to IRS data via Forbes.

Year Bidens' AGI  Bidens' Charitable Gifts  Average Gifts for Bidens' AGI 
1998$215,432$195$5,315
1999$219,797$120$5,559
2000$219,953$360$5,559
2001$220,712$360$5,559
2002$227,811$260$5,803
2003$231,375$260$5,803
2004$234,271$380$5,803
2005$321,379$380$8,015
2006$248,859$380$6,287
2007$319,853$995$8,015
2008$269,256$1,885$6,769
2009$330,000$4,820$8,269
2010$379,178$5,350$9,544
2011$379,035$5,540$9,544

Grouch: Personally, I don't give a hang just how stingy or charitable the Bidens are. That is their business, and they have to live with themselves and their hypocrisy. But I do care when politicians start using the bully pulpit and taxpayer resources to play the class warfare card, and criticize private citizens about selfishness and not paying their fair share to the world's largest non-voluntary charitable organization, the US Government. The Bidens' behavior noticeably changed in 2008 when Joe was nominated to be Vice President due to the scrutiny he knew his tax returns would receive. Their charitable donations have increased significantly since then, but still fall far short of the average couple in their income bracket. Don't get me wrong.... Joe is free to give as much or as little to charity as he wants, but spare me the lectures and stop drooling over the prospect of taking more money out of my wallet to fund stupid ideas like Solyndra, or light rail service between Las Vegas and Nowhere, California.

HT: Carpe Diem

John Stossel: No They Can't: Why Government Fails -- But Individuals Succeed.

"The worst superstition -- the most socially destructive of all -- is the intuitively appealing belief that when there is a problem, government action is the best way to solve it."

So says John Stossel, libertarian host of Fox Business Network's Stossel, in his new book, No They Can't: Why Government Fails -- But Individuals Succeed.

A broadside against central planners and lazy thinking, No They Can't takes on public education, regulation, cronyism and green energy, among an array of other issues undermining American prosperity and economic freedom.

Part One:


Part Two:

Thursday, April 12, 2012

Youngstown, OH: America's Next Energy Boom Town?

T. Boone Pickens: "I've lost my a** in the wind power business"



This quote came moments after Pickens said ""The jobs are in the oil and gas industry in the United States"

Grouch: The American Taxpayers have lost their a**es on their wind energy investments too. They just don't know it.

US Government Debt Exceeds the Entire Euro Zone and UK Combined

Wednesday, April 11, 2012

Dolphin Rescue

Cartoon of the Day: Public vs Private

Quote of the Day: Shelby Cullom Davis

Bonds promoted as offering risk-free returns are now priced to deliver return-free risk.

~ Shelby Cullom Davis

Grouch: This quote summarizes my thoughts on today's bond environment, especially long bonds--- all risk, no reward. A terrible time to be a lender.

But on the flip side, it's a great time to borrow long, and there has rarely better period of time in the nation's history to buy residential housing.... affordability is greater than it ever has been and interest rates will never be this low again.

Sunday, April 8, 2012

The Buffett Rule Illustrated

Here's how effective the Buffett rule would be at making a dent in the yearly government deficit.  Keep scrolling down and down and down and down (ad nauseum)....


It's hard not to conclude that this is more slight of hand by politicians to take the eye of the electorate off of the real problem.

Via Ace.

Saturday, April 7, 2012

Tony Robbins on How to Feed a Nation at the Public Trough for Only $10B a Day



Tony channels iowahawk to spell out the insane magnitude of government spending and show the ridiculousness of the tax the rich mantras of left. Folks, there is only one real solution to this problem: spending cuts coupled with economic growth. Everything else is just stupidity, ignorance and politics (but then I repeat myself). This video is well worth the watch.

Markets in Everything: Cash Only Surgeries

When is the last time anyone saw a full and transparent price list for medical procedures? The 1950's?

Below is the the price list for the Surgery Center of Oklahoma:

PROCEDURES TOTAL
ARTHOSCOPY
 Knee $3,740
 Knee with lateral release or microfracture $4,510
 Shoulder $5,720
 Elbow $3,740
 Wrist $3,740
 Hip $5,225
 Ankle $3,740
OPEN PROCEDURES
KNEE
 Anterior cruciate ligament repair $7,040
 Posterior cruciate ligament repair $7,040
 Medial Collateral Ligament $6,160
 Tibial Tubercle Osteotomy $6,160
SHOULDER
 Open Rotator Cuff Repair $6,160
 Bankhart Stabilization $6,160
 Distal Clavicle Excision $4,730
ELBOW
 Ulnar Nerve Trasposition / Epicondylectomy $4,510
 Wrist/Hand
 Carpal Tunnel Release $2,750
 Dupuytrens Contracture $2,915
 Trigger Finger $2,750
 Ganglion Excision $2,750
ANKLE
 Achilles Repair $5,830
FOOT
 Bunion $4,125
 Hammertoe (1) $2,475
 Hammertoe (2) $2,860
 Hammertoe (3) $3,355
 Gastrocnemius Recession $4,180
 Plantar Fasciotomy $3,080
 Neuroma Excision $2,750
FRACTURES
 Closed Reduction and Casting $1,925
 Percutaneous Pinning - finger 1-2 pins $2,805
GENERAL SURGERY
HERNIA
 Inguinal $2,860
 Bilateral $4,275
 Umbilical $3,190
 Incisional $4,075
 Cholecystectomy $5,665

"The Surgery Center of Oklahoma is a 32,535 square foot, state-of-the-art multispecialty facility in Oklahoma City, owned and operated by approximately 40 of the top surgeons and anesthesiologists in central Oklahoma. The facility has been accredited by the AAAHC since 1998 without interruption and has annually provided care to thousands of patients. If you have a high deductible or are part of a self-insured plan at a large company, you owe it to yourself or your business to take a look at our facility and pricing which is listed on this site. If you are considering a trip to a foreign country to have your surgery, you should look here first. Finally, if you have no insurance at all, this facility will provide quality and pricing that we believe are unmatched."

From the FAQ section:

"To keep our prices as low as possible, cashier's checks or cash are the methods preferred. Credit cards and personal checks cannot be accepted. Human resource departments or divisions of self-insured companies can make other arrangements if necessary.

Payment in full is required at the time service is rendered. No payment arrangements can be made. These deeply-discounted prices are otherwise not available."


HT: Carpe Diem

What is Capitalism

Friday, April 6, 2012

The Cost of Higher Fuel Economy


From The New York Times: "Electric cars, hybrids and high-mileage versions of some vehicles are more efficient but also more expensive than similar offerings from the same brand. Even given high gas prices, it may take years to earn back the additional cost."

Grouch: I think the "green" in green economy refers more to the extra dollars it costs, rather than any good done for the environment.

Thursday, April 5, 2012

States that Ignored the Recession


In the map above, the Coincident Economic Activity Indexes for all of the states in blue are below their December 2007 levels, led by Nevada which is -22.27% below pre-recession level. The other non-blues states are above their pre-recession levels, led by North Dakota, which is 21.77% above the December 2007 level.

Wednesday, April 4, 2012

Expenses Matter and Investment Expertise is as Rare as Blue Diamonds

One of my favorite pastimes on the weekend is to listen to financial radio shows as I'm working on projects. Everyone who has one of these shows is trying to sell the listeners something-- financial planning, investment advice, money management, etc. One show in particular caught my attention. The host, as expected, was very confident, had an investment "vision" for the next 3 - 5 years of what sectors/countries would excel and which ones would lag, and touted wonderful results from implemented the advice. Since truth in advertising is hard to come by in the investment community, I decided to do some research.

This radio personality occasionally mentioned a set of mutual funds she ran. I was able to locate them on Morningstar and get some raw information on expenses and performance. Boy was I surprised! These funds carried a 5.75% load. Ouch! They also levied 1.75 yearly expense ratio. So just to break even on the initial investment, the funds would have to return 8.1%. But wait..... that is not all. These funds were actually funds of funds investing in ETFs which incurred their own expenses. The ETF expenses ranged from a low of .40% to a high of .95%. So the effective expense rate of these funds is really around 2.25-2.45%.

But wait...... that's not all. To compensate for this kind of expense structure, these funds should be shooting the lights out on performance, right? Though heavily weighted toward commodities with precious metals ETFs and oil futures ETFs, not to mention shorting the S&P 500 while going long on the Peru and Vietnam stock markets, a $10,000 investment in these funds at inception (approximately a year ago) is now worth in the neighborhood of $7,000, falling quite short of the benchmarks. In fact, in the Morningstar performance rankings they consistently scored in the high 90's when compared to their peer group (1 is the best score, 99 the worst).

The moral of this story is quite simple: don't mistake confidence for competence. Anyone with money can buy their way into a weekend AM radio show. True investment talent is a rare commodity and takes many years to confirm. Most investment folks on the radio are sales people, not investment geniuses. Investment geniuses would be busy investing the money that keeps rolling in due to their successes, not trolling for new dollars from anonymous people listening on the airwaves. These funds may someday catch up with market returns, but they've set a high hurdled to overcome with their expense structure. The smart investor knows that expense ratios are the most reliable predictor of future results.

Tuesday, April 3, 2012

Do You Miss the '80's?

Women of the Marcellus



Energy in Depth released this video on Women of the Marcellus to show how energy production in the Marcellus Shale is re-uniting and strengthening families across Pennsylvania. "In 2008 alone, natural gas companies paid over $1.8 billion in lease and bonus payments to Pennsylvania landowners many of whom are Pennsylvania farmers."

Personal 3D Printers for $1300



Sign me up for one of these. Is this the future of manufacturing? Has the technology of Star Trek the Original Series finally started to appear in our lives?

Update on Turnaround Situations

Near the beginning of the year, I named two stocks as potential turnaround situations that investors should do their due diligence on to see if they were suitable.  I picked both stocks because they were universally hated by everyone, yet in my opinion they were not in danger of going out of business. The catalyst for change for these companies were new managements being put in place with multi-year clean-ups ahead of them to undo on mess left by previous management.

Each stock has fared well so far this year:



What was my margin of safety on these stocks? In the case of BAC, it was the implied government guarantee and the fact the Warren Buffett committed a significant chunk of money to stock. Plus, the kicker was the universal hatred of the stock by bloggers and the Wall Street crowd driving up the pessimism surrounding the stock, and driving down the stock price. There was no way Brian Moynihan could be as dumb as Ken Lewis, who almost single-handedly destroyed the bank during the financial crises by making foolish acquisitions at exorbitant prices. For Cedar Realty, new management laid out a credible plan to correct the diworsification strategy of previous management through debt reduction, leveling out debt maturities, and divesting non-core assets. Cedar's properties consist of 80+% grocery store anchored shopping centers which provide a steady and predictable stream of income. After all, everyone has to eat. In addition, Cedar was selling at a discount to its core assets.

In my opinion, both of these stocks have further to run. I expect BAC to be in the mid 20s in 3-5 years and Cedar Realty to rise to the high single digits in 2-3 years. I would not be surprised to see Cedar acquired by another REIT once their turnaround is completed. As always, please do your own research before committing capital.